Forged Transfer of Shares - Remedies and Role of Dematerialisation

# Forged Transfer of Shares: Remedies

## What is a Forged Transfer?

A forged transfer occurs when a share transfer instrument is executed using a forged signature of the actual shareholder. Since forgery is a nullity in law, it confers no title on the transferee, irrespective of good faith.

## Remedies Available

### 1. Remedy for the Original Shareholder

If the company registers a transfer based on a forged instrument:

• The company is bound to restore the original shareholder's name in the Register of Members.
• The original shareholder's title remains intact because forgery cannot pass title.

### 2. Remedy for the Innocent Third-Party Buyer

Where the first transferee (using the forged instrument) sells the shares to a bona fide purchaser, and the company registers the new buyer:

• The company cannot deny ownership to the genuine buyer who acted in good faith.
• However, the company is still obligated to restore the original shareholder's name.
• The innocent buyer is entitled to compensation from the company.

### 3. Remedy for the Company

• The company can claim indemnity from the first transferee (the one who presented the forged instrument), since that party is the source of the wrong.

## Role of Dematerialisation

• Dematerialisation significantly reduces chances of forgery because securities are held electronically with depositories.
• Private companies are not mandatorily required to dematerialise securities. However, due to a limited number of shareholders, they can exercise close vigilance and detect forgery more easily.

## Memory Aid

Forgery = Nullity → Original owner protected → Innocent buyer compensated → Company indemnified by fraudster.